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Invigorate the economy by splitting economy by age groups

In my last post, I attempted to imagine the consequences of my earlier proposal to split the government into two bodies with distinct voting populations. One of those bodies is charged with all operation of the government. This operational government is democratic with a minimum voting age of 16. The other government is charged with serving the obligations of debts and entitlements. The obligation-servicing government has a minimum voting age of 55, but participation requires relinquishing the right to vote in the operational government.

My proposal is to divided the current government into two distinct governments with distinct voting populations and distinct areas of responsibility. This provides a divide-and-conquer approach to solving government problems. In particular it isolates the servicing of all obligations from the needs of operating the current government. I proposed that this obligation-servicing government have a higher minimum voting age because it will require mature choices of resource allocations for those obligations. I further justified this older voting age by the fact that the older population receive most of the obligated entitlements and they were responsible for the debts incurred while they were younger.

The two governments have to obtain their needed funding by directly taxing their voting-eligible populations or by negotiating transfer of funds between the two governments. Either government can request transfer of funds from the other but the other government has to approve of the transfer. The moneys for the transfer will come from taxes on the respective populations. In my initial thinking, I imagined both governments having the ability to raise money through new debt, but I think it makes more sense to reserve debt decisions to the government responsible for servicing the debt. In this new concept, the operational government always operates in a balanced budget. The collective budget of both governments may run a deficit but that deficit will only occur in the government charged with servicing the debt.

This separation of budgetary powers will provide a new check-and-balance approach to manage the budget. There is no comparable budgetary check-and-balance in the current system. Currently, no government body is accountable for debt increases. Debt increase occur automatically. My proposal is to make a government body accountable for debt increases. That accountable body is the government of the servicing of obligations.

I proposed this concept of two governments is a means to restore the demographic balance of when democracy was more effective in providing a vibrant economy. I noted that the early surprising success of the democratic government coincided with a young population. The population was younger because it was a period of rapid immigration and high birth-rates at a time when there were not as many medical or public-health protections to assure a longer life. Democratically, the younger people far outnumbered the older people and this resulted in major renovations of government most notably starting with the Andrew Jackson administration that replaced the earlier generation with memory of the revolutionary war and the constitutional convention. Because the young people dominated the demographics, each new generation had a lot of democratic power to change government. The older people became less relevant to government unless they can persuade the younger population to vote in their favor.

That balance began to change in the second half of the 20th century so that today the older population has a significant voting power to decide elections on their own. Increasingly they are using this power to preserve the old order of things and thus preventing the agility that the earlier democracy coincidentally enjoyed. The earlier agility that came from frequent renewal of a majority dominated by young people enabled economic innovations that vastly increased wealth. The current state of economic stagnation may be the result of the shift in political power to older people whose interest is in preserving old and outdated policies.

We have reached a point where the older population is of sufficient size that they can form their own government. The older population’s interest in preserving old policies is best applied to policies concerning the servicing of obligations in the form of entitlements and debt servicing. Making this separation frees the younger population to make more radical changes to the operation of the government and especially in the policies that impact the economy. This increased agility can come with hazards, but the evidence of history suggests that agility from democratic processes will perform very well.

The case for making the operational government governed by a youthful majority rests heavily on the motivation to recover a vigorous economy such as what the country enjoyed during its first 150 years. I want to consider how this economic vigor can occur in my proposal to have two governments that divide the constituencies by age.

I am making an assumption that the operational government will have more economic vitality because its democratic control by the population with ages between 16 and 55 restores the age distributions we experienced in our earlier history. In this post, I want to consider the economic impact of isolating the older adults (over 55) into a separate government responsible for servicing obligations.

Earlier in this post, I proposed giving the obligation-servicing government exclusive ability to run a budget deficit and thus incur new debt that must be serviced in the future. In this concept, the operational government dominated by younger people will not have the ability to raise debts. This is contrary to our earlier experience where the operational government (again dominated by young people) was able to raise debts. However, the earliest experience had a great aversion to debts and valued at least the goal of a balanced budget. Debt grew slowly over the first 150 years especially after excluding years of major wars. Most of the current public debt has accumulated over just the past 50 years. This increase in debt coincides with the aging electorate.

My proposed separation of powers makes a different government accountable for increasing debt to fund operational government. This separation did not exist earlier. The new proposal will make it harder for the operational government to run a deficit. However, I think this proposal restores the earlier reluctance of a younger and less confident nation to incur large debts. Instead of hampering economic growth, the increased difficulty in raising debt will restore the governing environment of the earlier history when the country’s economy was more vigorous and responsive to new opportunities.

I am assuming that my proposal will make increasing the debt more difficult. The government responsible for serving the debt is also responsible for distributing entitlements. Money lost to servicing the debt will not be available for entitlements. Debt will continue to grow, but the entitlement spending must come from what ever debt servicing leaves over from a budget from whatever taxes available from the older population or whatever the operational government agrees to transfer. The government of servicing the obligations faced difficult choices of how to allocate available funds. I justified the higher minimum voting age as an expectation of higher maturity to make these choices between debt payments, individual entitlement disbursements, or healthcare spending. These decisions will become even more difficult in the near future.

Concerning the operational government’s restricted access to debt, I don’t think this will be a major impediment to the economic vitality of the operational government by a more youthful electorate. Instead it helps to restore the older democratic environment when the nation’s economy was more dynamic despite a reluctance to incur large debts.

The main issue for the two part government is the forced conversion the nature of workforce participation as a result of reaching a certain age. In earlier history, the reason why the democratic government was dominated by a youthful population was because of the relatively small numbers of an older population. They managed very well without older workers, but they also didn’t have older people around who needed incomes.

My proposal is to have the older workers participate in a different economy governed by a separate set of labor rules. In particular, the older population will lose many of the labor protections enjoyed by younger workers. The older workers will work without protections of age discrimination, minimum wage laws, employer-mandated contributions to healthcare and retirement, and working hours. The nature of the change will result in many people over 55 being forced to retire from their regular employment and re-enter the labor market as independent contractors. Independent contractors will generally have lower financial compensation as a result of short term contract that may not be full-time and may result in long gaps between contracts. The contracts will not provide paid time off, healthcare contributions, or retirement matching contributions.

I repeat my earlier assertion that not all older workers will lose their employment they enjoyed in their youth. Some workers will remain valuable enough for employers to continue their employment and access to employment benefits. I am assuming most people will not fall in this group. In addition the members in this group will be experience higher uncertainty of continued employment because the job no longer has the labor law protections of the younger population.

The obligation-servicing government will make its own set of labor laws that apply to older workers. While it is conceivable that these laws may match the protections of the labor laws for the younger population, I don’t think this will happen. The government of older people will include sizable populations of people who no longer qualify for any employment or who can not work full time. Also, I think the labor laws for older workers will be less strict on employers in order to increase the economic competitiveness of older workers. Older workers will need to have more flexibility to accept work that involves longer hours, lower hourly rates, or lower overhead costs.

The government of older workers have fixed cost problem of funding the entitlements. Laws that maximize the number of older people who are able to work will help the bottom line. The contracted workers will require fewer entitlements and their taxes can help fund the entitlement programs.

All of this is to argue that labor laws governing older workers are likely to be far more lenient on employers than the laws governing younger workers. We want the older workers to continue working as long as they are willing or capable.

This higher leniency in labor laws may have its own unique contribution increasing the vitality of the government. In earlier period of this democracy, the economic growth came at a time when most of the workforce lacked modern labor law protections. People worked for very small wages and for long hours. Competition for workers provided the primary protections for workers. When industries needed more labor, they can entice workers to switch jobs with higher wages or more benefits. This natural market protection was less restrictive than the later labor laws. The earlier economy thrived because entrepreneurs were able to try new industries with low-cost labor that often was short-term due to the dynamics of business cycles or because the company would go bankrupt.

My proposed model of a separate older workforce provides the economy with a new pool of lower cost and short term workers. These workers may be older but due to advances in healthcare and public health, these workers are generally very healthy and capable workers. They can provide the labor for the more risky ventures that occasionally may succeed into building new industries that can eventually employ the more strictly governed younger workers.

Making the older workers available as independent contractors instead of long-term employment obligations can enable the start up of new businesses. Some of these new businesses will succeed and thus add to the nation’s economic wealth. In the current government, the available labor is more costly to such businesses and this is likely limiting the number of new ventures.

I think most of these new ventures will be led by older people who are building on their earlier experiences as employees and are motivated to recover the economic security they enjoyed when they were younger. By being free of more restrictive labor laws for younger people, the older people can join in teams to make new businesses that are not possible in the current regulatory environment. The teams can involve manager and worker relationships where managers and workers can work as many hours on the project as they wish and for as little money as they will accept. Many may choose to work for little or no money, or to receive compensation in form of food and housing.

In the earlier discussions, I described the 55-year-old cut-off from the younger economy as a reasonable age to accomplish what is expected for a first career or for raising a family. After 55, the incentives work work changes for natural reasons. A corresponding change in labor laws allows for these workers to come together voluntarily into seemingly more exploitative arrangements in order to attempt to start a new business.

The modern analogy is a small business start-up where the principals will agree to work for long hours and no pay. In these cases, such business opportunities are limited to what can be done with a sole proprietor, immediate family members or a limited number of partners.

In contrast, my proposed new economy for older workers will allow start-ups of much larger groups that agree under similar arrangements of long hours and little or no pay. These ventures may operate like employer-employee businesses, with management hierarchy and differentiation of tasks. The workers will all be older workers governed under more lenient labor laws. The potentially value contribution of these older-worker business start-up is that the initial size of the start up business can be much larger than possible under the limited circumstanced we current permit. A business of several dozens or even hundreds of workers can come together to attempt to build a more complex business but initially work under start up conditions.

Their motivation will be that the business will eventually become successful and that they will be rewarded later either by obtaining managerial positions within that business or by selling their shares in the company. I suspect many will find reward merely by having the opportunity to work and avoid idleness of an early retirement.

If the business does succeed it will be succeed with a great head-start by being a larger business from the start. The successful company will then hire younger workers who will need to work under the more strict labor laws, but the larger size of the new company will put it in a better shape to meet those requirements for the long term.

The population of older workers operating under a different set of labor laws may present new opportunities for economic innovations that would not otherwise be possible. In this two-economy model, there is a potential for economic benefits coming out of the older population in addition to the economic benefits of freeing the younger population from interference by older workers. The older population can innovate with large-scale start-ups of workers who faced early retirement from their initial careers. These large scale start-ups can lead to new large businesses that can produce new economic growth for the nation.